How to Use a Blockchain for Wine Industry?

In 2017, the world wine market reached 300 billion dollars, while, according to expert estimates, every fifth bottle of wine in the world is fake, if it is French varieties - every third. For the global economy, this means a loss of 60 billion dollars, and for society - tens of thousands of deaths annually due to the use of low-quality counterfeit products.

Further, it will be discussed how this and other key problems of the industry can be solved using the blockchain. We will describe how to implement a decentralized distribution register in the wine industry's sales chain and what it will give to producers, consumers and society as a whole.

How to implement blockchain in the sales chain of wine products

Wine production can be divided into eight elements, depending on who is the main subject at one time or another in the product life cycle. The list of these subjects and a simplified model of their interaction are presented in the following figure:

We use this scheme to see how the blockchain can be integrated into the wine sales chain: how and when the data will be collected, who is responsible for this and how the commodity, documentary and financial transactions will take place.

#1 Winegrower

This is the initial link in the sales chain, since wine production begins with vineyards. People who are professionally engaged in the cultivation and harvest of grapes are called winegrowers. They take care of the plants and control the growth parameters (humidity, acidity and soil compaction, temperature, etc.), and are also responsible for protection from weeds and insects.

Integration of the blockchain at this stage means the following actions:

1. A network of sensors is being created that automatically collects data on weather, soil conditions and other parameters that affect the quality of the grapes in a particular season (production cycle).
2. The winegrower enters the system with data about himself and the land plot (location, height, type of soil), type and number of vines, their origin, irrigation and processing. Here it is important to consider everything: from what fertilizers were used to how and when the vine was cut.
3. When harvesting, data about the date of harvest, how the grapes are delivered to the winery, etc. are entered into the system.
4. After harvesting and squeezing the juice, the information about the date of this procedure, the equipment used, etc. is entered into the system.

This information is important because it affects the taste of the drink, environmental friendliness and ultimately the cost of wine in stores. Having collected a large array of such information, you can also use data science to understand how to grow grapes, from which the most delicious wine is obtained.

#2 Winemakers

These are people and companies involved in the production of wine. To ensure traceability, such entities must add to the blockchain:

1. Data on suppliers, grape variety; date of receipt of raw materials; description of the state and quality of the obtained raw materials; data on the conditions of its delivery.
2. Records of internal procedures, such as decantation, fermentation and preservation, as well as aeration in the production of rose wine.
3. Information on temperature, chemical content and additives.
4. Data on storage conditions and production spill.
5. Information about yeast and its use.

There is no need to make a detailed description of the wine production process in the system, as this may violate a commercial secret - the producers of elite wines keep some elements of production in secret (this is characteristic not only for the wine industry).

The matured wine is sent to the distributor of the wine mass, filler / packer or other winemaker for mixing. This can be both the shipment of a product to a new subject, and the transportation of wine to another factory workshop.

#3 Wholesale Distributor

These are people or structures responsible for obtaining wine from winemakers, mixing them and sending the finished product to a transit cellar or packer. Wholesale distributors contribute to blockchain:

1. Date of obtaining, data on the conditions of transportation and storage.
2. Information on processing, sampling, analysis of bulk wine and the date of dispatch.
3. If the blending process is performed, this is also recorded in the blockchain.

#4 Transit cellar

They are responsible for receiving, storing, shipping, processing, sampling and analyzing bulk wine. In fact, the role of the transit cellar is similar to the role of wholesale distributors, the difference in minor details of the logistics chain. Consequently, the data to be entered into the blockchain at this stage is identical to that described in the previous section.

#5 Filler / packer

Get the wine from the wholesale distributor or transit cellar and pour it into barrels, kegs, bottles or bags. At this stage are carried out the identification and labeling of the goods. For the correct use of the blockchain, it is important to ensure the consistency of such labeling between different market participants. This refers to two types of data:

1. Directly about the product and production: reception, storage, processing, sampling, analysis, filling, packaging and shipping of finished products.
2. Information about counterfeit protection: paper types, laser embossing, hot and cold foil embossing, heat-sensitive paints, holograms, hot stamping and other.

Data about protection means is important, since consumers will also have access to the blockchain (using the application and a QR code). People should be able to match the bottle of wine in the store with what they produce in factories. Even better, you can check out individual remedies here and now. For example, verify the authenticity of a hologram using a scanner in the phone or find out if there is a specific store, region or country in the supply chain.

However, it is best to use the system of unique one-time digital identification certificates in the form of QR codes, which are assigned to each individual bottle, package or barrel of wine. Such codes will be part of the labeling of finished products, and they can be used to verify the authenticity of the goods.

#6 Distributor of finished products

Wine-filled packaging is sent to the retailer or distributor of finished products. The duties of the latter include the storage and shipment of finished packaged products to points of sale, as well as inventory management. To do this, the item is usually repackaged and remarked in large batches.

What needs to be reflected in the blockchain:

1. Reception date, storage conditions and date of shipment.
2. Repackaging and remarking information.
3. Information about the destination of the goods.

#7 Wholesalers

Receive boxes and pallets with wine and send them to retail stores. At this stage, the blockchain receives information on the obtaining, storage and delivery of goods, most of which is collected automatically using sensors and RIFT tags. These devices monitor temperature, movement speed, shaking, and other data that may affect product quality.

Data about the conditions of storage and transportation is important because, according to research, during transportation, 20% of wine deteriorates due to non-compliance with temperature regimes or excessive shaking - the longer the logistics, the greater these figures. And neither the ordinary buyer nor the expert will be able to understand what wine is spoiled until the bottle is opened.

#8 Retail

The retailer receives finished products in the form of bottles, cans, barrels and cardboard boxes from the distributor of finished products or the wholesaler and sells them to final consumers. Retail is responsible for displaying in the network information about goods received, their storage and sale. The sale must be logged so that the same identification tag cannot be reused.

So that end users can quickly and easily obtain information about wine and its origin, it is necessary to develop a mobile application. It can be used together with a QR code located on a bottle of wine.

What problems will the blockchain solve

Adulteration of wine is the biggest problem of the industry. Large-scale wine producers spend millions of dollars annually on fighting counterfeit products, introducing protection means more efficiently than those used by the Federal Reserve to protect the American dollar.

For example, in April 2018, the world-famous producer of Bordeaux wines Grands Vins de Gironde was  fined $ 500,000 for selling cheap table varieties under the guise of more expensive ones. This is a scandal, but it fades before the Rudy Kurniawan fraud, which managed to sell tens of thousands of bottles of counterfeit wine worth  worth over $ 500 million.

Thanks to the blockchain, such cases will become rare or disappear altogether, since anyone can trace the origin of the wine. And even if the manufacturer makes a fake, it can be easily and quickly understood by comparing the data taken into account with the actual capabilities of the winery (so proved the fact of a fake in the case of Grands Vins de Gironde).

Quality control. The two main factors that influence the quality of the wine are temperature and humidity. The ideal storage temperature is 10–12° C for strong wines and 14–16 ° C for dessert wines, and it should not fluctuate more than 3–5 degrees a day. Humidity is also important, since its optimal value (60–70%) does not allow the crust to dry out and prevents the growth of mold.

According to surveys, 90% of consumers would like to be able to check these and other factors when buying wine, and more than 70% of them are willing to pay a higher price, by having such an opportunity.

Blockchain allows you to fulfill this need by tracking important parameters throughout the life of a wine in real time. These data are recorded in the blockchain network and are provided to everyone, so that everyone can check the conditions of storage and transportation of the "solar drink".

Accessibility of information. On the usual bottle there is information only about the chemical composition of the wine and its manufacturer. This is clearly not enough to understand how safe, tasty or organic it is.

By digitizing the wine production process and writing the necessary data to the blockchain, users and appraisers will be able to get comprehensive information about each bottle. If you enter a rating system and the ability to leave reviews, this will help with the evaluation of taste, not only the variety as a whole, but also each individual batch.

What blockchain doesn't help with

It will not remove all fraudsters from the market. Although the blockchain provides great opportunities to fight counterfeits, it is not able to stop all types of fraud. Thus, the distribution register will prevent the creation of several copies of the same wine, the substitution of expensive varieties for cheap, the sale of counterfeit goods and spoiled goods.

Other fraudulent schemes will remain. For example, you can take a bottle of expensive wine and replace its contents (popular in the restaurant business), you can still “find” a bottle of old expensive wine and sell it at auction. With such types of fraud can help the rating system and the escrow of funds. However, these are deterrent, rather than impeding factors.

It will not give 100% guarantees of authenticity of origin. Blockchain and smart contracts will make the market much more transparent and safer, but in an industry where the main customers are very rich people, anonymity is part of the game. Consequently, fraudsters will still be able to anonymously sell fakes and evade responsibility.

In fact, this means that fraudsters can always enter a market with a clean reputation, for example, by creating a new legal entity that is engaged in wholesale or retail sales. It is impossible to prevent this.

Two options for estimating the cost of expensive wine

Cost estimation with blockchain. Let’s suppose you want to evaluate two bottles of Mouton-Rothschild of 2000, the origin of which is reflected in the blockchain. To do this, you take the bottle of wine to the appraiser; he uses the phone to scan the tags and see what the system has issued. In a public book, he sees that both tags were created in the same vineyard in one year, but one bottle was sold to a well-known collector, and the second to an unknown participant.

In this case, the appraiser may assume that the collector will relate to the transportation and storage of wine with the utmost responsibility. The conditions of transportation and storage in the second case are unknown to him. Consequently, the first bottle has a better chance of preserving its taste, which means its price is higher.

Cost estimation without a blockchain. You have the same two bottles of Mouton-Rothschild of 2000, but without recording the history of the origin in the blockchain network. In this case, the appraiser examines both bottles, asks about the origin and storage conditions of each of them, conducts an investigation (checks the information received) and assesses the authenticity and cost of wine.

If during the investigation it is decided that this is not a fake, the appraiser creates two entries in the blockchain and hangs identification tags on the bottles. Then you go to auction or eBay and sell wine.

6 Use Cases

SevenFifty — trade and communication platform that helps importers, manufacturers, distributors and retail buyers to communicate with each other and conduct business in the production and sale of alcoholic beverages in the

US market. SevenFifty allows manufacturers and distributors to create a portfolio with a list of products and complete, traceable history of the origin of each bottle, and customers to study the portfolio and choose from a variety of options suitable, verify the authenticity of the goods and place an order here.

Chai Vault — platform created by Maureen Downey. This is a world-class expert who not only assesses wines, but also fights against fraud in the market. On her account, the exposure of many fraudsters, including the aforementioned Rudy Kurniawan. At the heart of Chai Vault is the Everledger blockchain, which collects and stores information about the movement of wine along the sales chain.

VeChain — Chinese platform for tracking the origin of various goods and optimizing logistics. In 2017, VeChain signed a partnership agreement with French wine producer Pierre Ferraud & Fils and Chinese distributor Direct Imported Goods (DIG). Currently, 30% of all wine imported to China comes in through DIG (over 1 billion bottles).

EY Ops Chain — a set of applications and services to simplify the management of sales chains, record the history of origin and the conclusion of transactions. The project was created by consulting company EY (included in the Big Four along with Deloitte, KPMG and PwC) in collaboration with EzLab and is focused on protecting the quality of Made in Italy production and increasing market transparency. The development uses the winery LaVis.

VinX (Vinsent) — the platform created by Medici Ventures to provide wholesale and retail buyers with the opportunity to enter into futures contracts for the purchase of wine (large quantities and single bottles). That is, you can buy wine here before the grapes from which it is made are grown. Traceability of the sales chain, the ability to conclude P2P transactions and open access to information on the blockchain are also present.

CWEX (Crypto Wine Exchange) — decentralized platform for buying and selling collectible and ordinary wine for cryptocurrency. The service guarantees anonymity and security of investments by providing a certificate of ownership based on a chain of blocks for each bottle of wine sold on CWEX. The project was developed with the support of DotChain GmbH, located in Switzerland, and is at the stage of the initial offer of coins.